Just £75,000 of savers' money will be protected if their bank or building society goes bust from next year, a drop of £10,000.

The decrease is the first time the level of protection has been cut since the financial crisis, when the limit was increased several times to reassure savers that their cash was safe.

The limit will remain at its current level of £85,000 until December 31, the Bank of England's Prudential Regulation Authority announced today.

Limit fall: From next year, the FSCS limit will drop from £85,000 to £75,000, the PRA announced today

It explained the decrease is due to the strengthening pound, which has been soaring against the euro in recent months due in part to the ongoing crisis in Greece.

The level of protection offered to savers is set in line with a European scheme, which protects savers' deposits up to €100,000. Every five years the PRA recalculates the sterling equivalent of €100,000 to set the limit for British savers.

The PRA says the process and timing is specified by the directive and is not at its discretion.

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HOW THIS IS MONEY CAN HELP

The FSCS currently protects deposits up to £85,000 in the event of the failure of a bank, building society or credit union that is part of the scheme.

The current compensation limit was set in December 2010, based on the sterling equivalent of €100,000 at the time.

The change comes after a huge drive in recent years to inform savers about how their money is protected under the scheme, with many now knowing the £85,000 limit.

BANKING LICENCE: HOW SOME SHARE

Savers receive FSCS coverage once under each bank or building society's 'compensation licence'.

So if you have more than £85,000 - or £75,000 from next year - you can protect the lot by spreading your money across different banks and building societies with no more than the protection limit in each.

However you should watch out because some banks share a licence and you will only benefit from the £85,000 or £75,000 limit once.

For example, Halifax shares a licence with the AA, Bank of Scotland, BM Savings and Saga.

If you have a joint bank account, the two of you receive protection on your savings up to twice the limit - so £150,000 from next year.

For example, from August 2012, banks and building societies who are part of the FSCS protection umbrella had to let customers know by putting stickers in the windows of branches.

The PRA says a transitional measure - with the limit staying at £85,000 until the end of the year - will help ensure savers have suitable time to plan for and adjust to the change.

For savers who who are contractually tied into products – namely long-term fixed-rates savings accounts - with balances above £75,000, the PRA is consulting on rules to help manage the impact of the limit change.

This consultation ends on 24 July. Pending on the result, the PRA says the intention is to allow savers to withdraw funds between the old and new limits without penalty from 1 August 2015 until 31 December 2015 if they experience a decrease in deposit protection as a result of the limit change.

It also means a drop in the limit for joint accounts from £170,000 to £150,000.

Anna Bowes, director of advice website Savings Champion said: 'This is a massive blow to savers, especially those who have carefully split their cash to ensure maximum protection under the FSCS.

'If they want to remain fully protected this will be an administrative headache for them, not only with regards to withdrawing any excess funds, but also looking for a new home for the money.

'In some cases, the alternative that is currently available may be paying a lower rate of interest, so they could be out of pocket too.'

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: 'This is absolutely bonkers. Savers are already suffering rock bottom interest rates, and now to add insult to injury the safety of that cash is being undermined.

'The popularity of both NS&I pensioner bonds and premium bonds demonstrates savers care as much about safety as they do about rates. Savers need to have the comfort of knowing they are protected in the event of a bank or building society collapse.'

Andrew Tyrie, chairman of the Treasury Committee, said it is 'absurd' that the depreciation of the euro should be forcing a reduction in the level of protection for UK deposit holders.

He said: 'Many savers and small businesses arrange their finances on the reasonable assumption that the deposit cover will be stable.

'They might also reasonably have expected that any changes would be in an upward direction, to reflect inflation and growth. Many people will now have to re-examine the arrangements they have in place.'

Another change announced by the PRA is that savers with temporarily high balances will be covered up to £1million for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later.

This is to ensure savers are protected when they deposit funds over the limit as a result of specified events.

This includes proceeds from a house sale or funds received from a 'life event' such as a divorce settlement or inheritance, for a period of time until they have had sufficient time to spread the risk between institutions to appropriately protect these funds.